Writing off S corporation auto expenses

Dear Tax Talk,
If an S Corporation leases a vehicle and deducts the monthly payment as an expense, will any of the deductions be subject to some reductions since the vehicle will eventually be used for personal as well as business purposes? -- Nathan

Dear Nathan,
Although you didn't say, I assume the leased vehicle is for the S corporation shareholder.

In an S corporation, a leased vehicle is subject to either reduction for personal use, or the value is included in the compensation of the employee subject to employment taxes. Since the reduction of the expenses for personal use is generally easier to administer, I have found it the preferred form for adjusting for the benefit derived by the shareholder.

For example, if the company pays $6,000 a year in automobile expenses such as lease payments, auto insurance, gas and repairs and the vehicle is used 80 percent for business and 20 percent for personal purposes, the deduction on page 1 of Form 1120S should be $4,800 (80 percent of $6,000).

The personal portion of $1,200 should be treated as either a distribution to the stockholder or a loan to be repaid.